Washington Prepares First G-2 Summit with China 'Europe Is Having to Justify Its Privileged Position'

China and the United States plan to discuss the world's troubles during a two-day summit that starts on Monday. In a SPIEGEL ONLINE interview, China expert Andrew Small says the meeting is symbolic of Beijing's newfound strength.


SPIEGEL ONLINE: We have G-20 meetings, G-8 meetings -- are we now seeing the first G-2 meeting between China and the United States?

A construction worker in Shenzhen's financial district: "Almost all new bank lending is going to the state sector."
REUTERS

A construction worker in Shenzhen's financial district: "Almost all new bank lending is going to the state sector."

Small: Washington and Beijing have been assiduous about disavowing talk of a G-2. In Beijing, there are fears about the burden a duopoly in global affairs would imply, and officials want to reassure friends in the developing world. Still, the G-2 concept refuses to die. Some Chinese officials have taken to saying that while the United States and China cannot solve any global problems between them, few global challenges can be effectively addressed if the two disagree.

SPIEGEL ONLINE: What kind of symbolic value do these talks -- which are very high profile -- have? Do the Chinese feel that they are finally being treated as on equal partner on the world stage by the Americans?

Small: The original intent behind the strategic dialogue between China and the US, established under the Bush administration, was that the two sides could talk about the spectrum of shared policy challenges. The original discussion under the new administration had been to even upgrade the whole thing to the vice-presidential level, which would have brought Hu Jintao's heir-apparent, Xi Jinping, into play on the Chinese side. That plan, by all accounts, was killed off by Secretary of State Hillary Clinton, who wanted to be part of the dialogue. The Chinese are happy to do it like this but they are always wary that these dialogues are a mechanism for placing a long list of demands on them. The expanded format does, after all, reflect the fact that while there may be a number of shared interests in principle, in practice there are many differences between the two sides and Washington is looking for movement from Beijing. Of course, quietly the Chinese are pleased about the new centrality that they occupy.

SPIEGEL ONLINE: How seriously will the two delegations discuss mutual strategies for tackling the financial crisis? After all, Chinese savings are financing the growing US deficit. At the same time, US officials want the Chinese to push for an increase in domestic consumption.

Small: China is still in a short-term and inward-looking mode -- they want to protect jobs and avoid internal unrest during the global economic downturn. They feel they are doing their bit for the United States and the global economy by pumping vast quantities of lending into their own economy and keeping growth rates up. They are not yet looking to be helpful beyond that.

SPIEGEL ONLINE: Won't Washington push for measures that would see, for example, China reducing its trade deficit and moving away from its policies that cause the artificial depreciation of its currency?

Small: The United States can't press China as hard as it used to on any economic issues; the power balance has shifted too much, in both economic and normative terms. Also, China knows that it is highly likely that there will be a long-term structural drop off in global demand that they need to compensate for domestically. They don't want to squeeze the export sector any harder at this difficult time, but they are looking beyond export-driven growth out of necessity.

SPIEGEL ONLINE: In the run up to the dialogue, some of Obama's staff said they didn't want the Chinese to draw "the wrong lessons" from the financial crisis. What do they mean by that?

Small: There is a real risk of this. China already had strong ideological inclinations towards state control of key sectors of the economy and resistance to opening its economy up. This has been heavily reinforced by the financial crisis. Almost all new bank lending is going to the state sector -- largely because for Chinese banks, that's the only low-risk place to focus the massive lending spree that they've been obliged to embark on. But the practical impact is still a serious strengthening of the state-controlled sectors of the economy despite the fact that the private sector has been a far better generator of economic growth.

SPIEGEL ONLINE: The dialogue is also expected to cover foreign policy. Will human rights be an issue?

Small: They will have to. There is a list of foreign policy priorities where the United States needs or wants China's help. North Korea is pretty much at the top of the list. Iran is high up. And the new administration has been making efforts to engage China more actively on Pakistan and Afghanistan. I don't believe there will be much substantial progress on any of these areas, but China will do its best to appear helpful within limited parameters. Addressing human rights, Hillary Clinton said it has not gone away as an issue, but that it has been added to a much longer list and can't hold all the other issues hostage.

SPIEGEL ONLINE: Should the Europeans worry about such G-2 consultations? They not only fear being pushed further towards the margins, but also that the Chinese and Americans will negotiate deals without them on important issues like climate change.

Small: Europe benefits from a good US-China relationship and it should be a lot more worrisome for Europeans if substantial consultations and dialogues between Washington and Beijing weren't taking place. We also need US-China side deals to get progress on certain issues. Climate change is one of them. So the worry shouldn't be these side deals, but rather if the deals are bad. The G-2 threat to Europe isn't that the US and China will carve things up between them, since they continue to disagree on too much, and to have basic values gaps. It's that they will be the two decisive powers on most major issues and that the need for some kind of agreement between them will always be the precondition for action. A more effective, united and capable Europe can reduce that threat, but currently Europe is having to work to justify its privileged position at the top table of global decision-making.

Interview conducted by Gregor Peter Schmitz.

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